Facing an R&D Enquiry

An HMRC enquiry examines whether an R&D claim has been prepared accurately and in line with current legislation and guidance.

This typically involves reviewing:

• The technical basis of the projects claimed
• The accuracy and eligibility of the costs included
• Supporting documentation and evidence

HMRC has intensified its scrutiny of R&D claims in recent years, particularly focusing on submissions that lack sufficient technical detail or have been prepared incorrectly.

Reviews can range from an initial “nudge” letter inviting you to reconsider your claim, through to a full compliance check requiring detailed evidence and explanations.

If HMRC decides to open a compliance check, you will receive a letter with an initial list of questions concerning your claim. In response, you will need to provide additional evidence to prove your claim is eligible for the relief. This can include:

• Invoices for costs claimed
• Detailed technical data and evidence
• Information and details about the competent professionals leading the project(s)

The initial letter can be followed by:

• 1-3 additional rounds of written questions
• One or more interviews with an HMRC inspector
• Potential escalation to Alternative Dispute Resolution (ADR)
• Referral to a tax tribunal

HMRC has increased scrutiny of R&D claims due to several factors:

Rising Cases of Fraudulent and Inaccurate Claims: HMRC states that there has been an increase in fraudulent or exaggerated claims, which has led to more rigorous checks to ensure only legitimate claims are approved.

Surge in R&D Claims: The growing awareness of R&D tax relief has led to more businesses making claims, necessitating additional resources to assess eligibility.

Incorrect Interpretations of Qualifying R&D Activities: Many businesses misunderstand what qualifies as R&D, leading to claims that lack sufficient technical justification or do not align with the BEIS definition.

Changes to the R&D Tax Relief Scheme: Recent legislative changes have been introduced to prevent abuse of the system, including stronger checks on SME claims and mandatory pre-notification for some first-time claimants.

These factors have prompted HMRC to adopt more aggressive review mechanisms and to ensure that R&D tax relief claims are robust, compliant, and well-documented.

If not addressed, HMRC may continue requesting information and may withdraw the claim in full. This can lead to extended correspondence and conclusions being reached without full clarification of calculations or context, reducing opportunities to explain transactions or provide missing information. Not responding does not stop the process and may increase the level of contact or extend the scope of HMRC’s review. Additionally, HMRC can levy penalties, where they find appropriate, for suspected fraud and error.

An R&D investigation does not automatically mean there is an issue. Enquiries are often used to clarify how R&D rules have been applied or to confirm accuracy.

Even well-prepared claims can now come under HMRC review, so receiving an enquiry does not necessarily mean anything is wrong.

Most R&D claims are not reviewed when they are first submitted and could often be processed and paid out without any review process being undertaken by HMRC.

R&D rules are detailed, and misunderstandings or queries can arise without there being any underlying fault. The investigation process allows HMRC to review the position and reach a clear understanding.

Following a compliance check, if HMRC concludes that your claim contains ineligible costs and projects, it can:

• Reject specific costs or projects, reducing your claim value
• Reject the claim entirely
• Open investigations into your previous claims, going back up to seven years
• Increase the amount of scrutiny on your future claims
• Institute fines and other penalties, if HMRC concludes you knowingly submitted false information.

R&D Tax investigations can involve complex rules, technical jargon and detailed calculations.

Many people use specialist support to help organise information, understand how rules apply to their situation and manage communication with HMRC. This can assist with clarity and consistency where matters involve technical details.